TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD ENDED
JUNE 30, 1998+
(UNAUDITED)
-----------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the period)
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income .02
Net realized and unrealid losses (.48)
-------------------
Total from investment operations (.46)
-------------------
Net asset value, end of period $ 9.54
===================
Total Return * (4.60)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $ 238
Ratios to average net assets:
Expenses 1.00%**
Expenses excluding waiver and payments by affiliate 18.73%**
Net investment income 1.01%**
Portfolio turnover rate 6.58%
</TABLE>
*Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administrative charges, mortality and expense
risk charges or other charges that may be incurred under the variable annuity
contract for which the Fund serves as an underlying investment vehicle. Total
return is not annualized.
**Annualized.
+For the period May 1, 1998 (commencement of operations) to June 30, 1998.
PAGE
TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 88.9%
BANKING 1.5%
Silicon Valley Bancshares United States 100 $ 3,559
-----------
BEVERAGES & TOBACCO 1.2%
Consolidated Cigar Holdings Inc. United States 100 1,225
Foodmaker Inc. United States 100 1,688
-----------
2,913
-----------
BROADCASTING & PUBLISHING 3.0%
Lamar Advertising Co., A United States 200 7,175
-----------
BUSINESS & PUBLIC SERVICES 4.3%
American Disposal Services Inc. United States 100 4,687
Catalytica Inc. United States 100 1,963
Norrell Corp. United States 100 1,994
PhyCor Inc. United States 100 1,656
-----------
10,300
-----------
DATA PROCESSING & REPRODUCTION 21.3%
Activision Inc. United States 300 3,094
Advanced Energy Industries Inc. United States 100 1,163
Applied Graphics Technologies Inc. United States 100 4,575
Business Objects SA, ADR France 100 1,688
Harbinger Corp. United States 150 3,628
HNC Software Inc. United States 100 4,081
i2 Technologies Inc. United States 200 7,025
Jabil Circuit Inc. United States 100 3,306
Komag Inc. United States 300 1,603
NOVA Corp. United States 100 3,575
PRI Automation Inc. United States 200 3,412
Sapient Corp. United States 100 5,275
Whittman-Hart Inc. United States 100 4,837
Wind River Systems United States 100 3,587
-----------
50,849
-----------
ELECTRICAL & ELECTRONICS 7.7%
Etec Systems Inc. United States 100 3,519
Integrated Systems Inc. United States 100 1,538
Level One Communications Inc. United States 100 2,350
Novellus Systems Inc. United States 100 3,569
Vantive Corp. United States 100 2,050
Wallace Computer Services Inc. United States 100 2,375
Xylan Corp. United States 100 2,981
-----------
18,382
-----------
ENERGY SOURCES 10.9%
Atwood Oceanics Inc. United States 100 3,981
Barrett Resources Corp. United States 100 3,744
Expeditors International of Washington Inc. United States 100 4,400
Lomak Petroleum Inc. United States 100 1,044
Newfield Exploration Co. United States 100 2,488
Synopsys Inc. United States 100 4,575
Tom Brown Inc. United States 100 1,881
Varco International Inc. United States 200 3,962
-----------
26,075
-----------
PAGE
FINANCIAL SERVICES .8%
Security Dynamics United States 100 1,850
-----------
HEALTH & PERSONAL CARE 6.2%
Access Health Inc. United States 100 2,550
Coherent Inc. United States 100 1,716
Pediatrix Medical Group Inc. United States 100 3,719
Serologicals Corp. United States 100 3,225
Total Renal Care Holdings Inc. United States 100 3,450
-----------
14,660
-----------
INDUSTRIAL COMPONENTS 2.6%
Uniphase Corp. United States 100 6,278
-----------
INSURANCE 7.7%
Executive Risk Inc. United States 100 7,375
Financial Security Assurance Holdings Ltd. United States 100 5,875
Life USA Holding Inc. United States 200 2,588
Risk Capital Holdings Inc. United States 100 2,494
-----------
18,332
-----------
LEISURE & TOURISM 2.7%
CapStar Hotel Co. United States 100 2,800
Prime Hospitality Corp. United States 100 1,744
Rio Hotel and Casino Inc. United States 100 1,888
-----------
6,432
-----------
MACHINERY & ENGINEERING 1.1%
Roper Industries Inc. United States 100 2,612
-----------
METALS & MINING 3.0%
Carpenter Technology Corp. United States 100 5,025
Gibraltar Steel Corp. United States 100 2,050
-----------
7,075
-----------
REAL ESTATE 3.6%
Arden Realty Inc. United States 100 2,587
Camden Property Trust United States 100 2,975
FelCor Suite Hotels Inc. United States 100 3,137
-----------
8,699
-----------
RECREATION & OTHER CONSUMER GOODS 2.8%
North Face Inc. United States 200 4,800
West Marine Inc. United States 100 1,800
-----------
6,600
-----------
TELECOMMUNICATIONS 6.5%
ICG Communications Inc. United States 100 3,656
Paging Network Inc. United States 100 1,400
Primus Telecommunications Group Inc. United States 100 1,894
Tekelec United States 100 4,475
Western Wireless Corp., A United States 200 3,987
-----------
15,412
-----------
TEXTILES & APPAREL .9%
Tropical Sportswear International Corp. United States 100 2,125
-----------
TRANSPORTATION 1.1%
Air Express International Corp. United States 100 2,675
-----------
TOTAL COMMON STOCKS (COST $222,320) 212,003
-----------
</TABLE>
PAGE
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT**
------------------
<S> <C> <C>
REPURCHASE AGREEMENT 12.2%
Joint Repurchase Agreement, 5.614%, 7/01/98(Maturity Value $29,063)
(COST $29,059)
BancAmerica Robertson Stephens (Maturity Value $2,777)
Barclays Capital Group, Inc. (Maturity Value $2,777)
Bear, Stearns Securities Corp. (Maturity Value $1,515)
BT Alex Brown, Inc. (Maturity Value $2,553)
Chase Securities, Inc. (Maturity Value $2,777)
CIBC Wood Gundy Securities Corp. (Maturity Value $2,777)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $2,777)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $2,777)
Greenwich Capital Markets, Inc. (Maturity Value $2,777)
Paribas Corp. (Maturity Value $2,777)
SBC Warburg Dillon Read, Inc. (Maturity Value $2,777)
Collateralized by U.S. Treasury Bills and Notes $29,059 29,059
-----------
TOTAL INVESTMENTS (COST $251,379) 101.1% 241,062
OTHER ASSETS, LESS LIABILITIES (1.1%) (2,642)
-----------
TOTAL NET ASSETS 100.0% $238,420
===========
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
(a)See Note 1(c) regarding joint repurchase agreement.
See Notes to Financial Statements.
PAGE
TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
Assets:
Investments in securities, at value (cost $222,320) $ 212,003
Repurchase agreement, at value and cost 29,059
Receivable from dividends and interest 96
-------------
Total assets 241,158
-------------
Liabilities:
Payable for investment securities purchased 2,361
Accrued liabilities 377
-------------
Total liabilities 2,738
-------------
Net assets, at value $ 238,420
=============
Net assets consist of:
Undistributed net investment income $ 380
Net unrealized depreciation (10,317)
Accumulated net realized loss (1,643)
Beneficial shares 250,000
-------------
Net assets, at value $ 238,420
=============
CLASS 1:
Net asset value per share ($238,420/25,000 shares outstanding) $ 9.54
============
See Notes to Financial Statements.
PAGE
TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
Dividends $ 112
Interest 645
-------------
Total investment income $ 757
----------
Expenses:
Management fees (Note 3) 282
Administrative fees (Note 3) 36
Custodian fees 436
Reports to shareholders 1,300
Registration and filing fees 900
Professional fees 2,600
Trustees' fees and expenses 200
Other 1,300
------------
Total expenses 7,054
Expenses waived/paid by affiliate (Note 3) (6,677)
----------
Net expenses 377
-----------
Net investment income 380
-----------
Realized and unrealized losses:
Net realized loss from investments (1,643)
Net unrealized depreciation on investments (10,317)
-----------
Net realized and unrealized loss (11,960)
-----------
Net decrease in net assets resulting from operations $ (11,580)
===========
</TABLE>
See Notes to Financial Statements.
PAGE
TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
JUNE 30, 1998
(UNAUDITED)+
-----------------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 380
Net realized loss from investments (1,643)
Net unrealized depreciation on investments (10,317)
-----------------------
Net decrease in net assets resulting from operations (11,580)
Fund share transactions (Note 2):
Class 1 250,000
-----------------------
Net increase in net assets 238,420
Net assets:
Beginning of period -
-----------------------
End of period $ 238,420
=======================
Undistributed net investment income included in net assets:
End of period $ 380
=======================
</TABLE>
+For the period May 1, 1998 (commencement of operations) to June 30, 1998.
See Notes to Financial Statements.
PAGE
TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Small Cap Investments Fund (the Fund) is a separate, diversified series
of Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The Fund
seeks long-term capital growth by investing primarily in equity securities of
smaller capitalization growth companies. The following summarizes the Fund's
significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. JOINT REPURCHASE AGREEMENT:
The Fund may enter into a joint repurchase agreement whereby its uninvested cash
balance is deposited into a joint cash account to be used to invest in one or
more repurchase agreements. The value and face amount of the joint repurchase
agreement are allocated to the Fund based on its pro-rata interest. A repurchase
agreement is accounted for as a loan by the Fund to the seller, collateralized
by securities which are delivered to the Fund's custodian. The market value,
including accrued interest, of the initial collateralization is required to be
at least 102% of the dollar amount invested by the Funds, with the value of the
underlying securities marked to market daily to maintain coverage of at least
100%. At June 30, 1998, all outstanding repurchase agreements had been entered
into on that date.
d. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
PAGE
TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
Common expenses incurred by the Trust are allocated among the funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.
f. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. BENEFICIAL SHARES
The Fund offers two classes of shares: Class 1 and Class 2 shares. The shares
differ by their initial sales load, distribution fees, voting rights on matters
affecting a single class and the exchange privilege of each class.
At June 30, 1998, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Fund's Class 1 shares were as follows:
PERIOD ENDED
JUNE 30, 1998*
-----------------------------
CLASS 1 SHARES: SHARES AMOUNT
------------- ---------------
Shares sold 25,000 $250,000
------------- ---------------
Net increase 25,000 $250,000
------------- ---------------
*Commencement of sales was May 1, 1998.
As of June 30, 1998, there were no transactions in the Fund's Class 2 shares.
Templeton Funds Annuity Company, the Fund's administrative manager, is the
record owner of 100% of the Fund's Class 1 shares as of June 30, 1998.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers or directors of Franklin
Advisers, Inc. (Advisers), Templeton Funds Annuity Company (TFAC) and
Franklin/Templeton Distributors, Inc. (Distributors), the Fund's investment
manager, administrative manager and principal underwriter, respectively.
PAGE
TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays an investment management fee to Advisers based on the average
daily net assets of the Fund as follows:
ANNUALIZED FEE
RATE AVERAGE DAILY NET ASSETS
- ----------------- ---------------------------------------------------------
0.75% First $200 million
0.65% Over $200 million, up to and including $1.3 billion
0.55% Over $1.3 billion
Advisers agreed in advance to reduce management fees to the extent necessary to
limit total expenses to an annual rate of 1.00% and 1.25% of the average daily
net assets of Class 1 and Class 2 shares, respectively, through 1998, as noted
in the Statement of Operations.
The Fund pays its allocated share of an administrative fee to TFAC based on the
Trust's aggregate average daily net assets as follows:
ANNUALIZED FEE
RATE AVERAGE DAILY NET ASSETS
- ----------------- ---------------------------------------------------------
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
4. INCOME TAXES
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At June 30, 1998, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
Unrealized appreciation $ 11,740
Unrealized depreciation (22,057)
-----------------
Net unrealized depreciation $ (10,317)
==================
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1998 aggregated $237,484 and $13,509, respectively.
